Defining Employee-Paid Benefits

This chapter provides an overview of employee-paid benefits and discusses how to:

• Use employee-paid benefit results.

• Create an employee-paid benefit.

Understanding Employee-Paid Benefits

Contributory plans present special considerations that require you to separate the total benefit amount into employee-paid and employer-paid portions. In a contributory plan:

• Employees are always 100 percent vested in their contributions, while the employer-paid portion of a benefit is subject to plan vesting rules.

• If employees are entitled to withdraw contributions as a lump sum at benefit commencement, you pay the employee-paid and employer-paid portions separately.

• 415 limits on total benefits only apply to the employer-paid portion.

The employee-paid benefit function calculates the total value of employee contributions and converts that amount to a single life annuity as of a specified date, usually the normal retirement date.

Note. If you track multiple employee accounts, set up a separate employee-paid benefit function result for each account.

Using Employee-Paid Benefit Results

The employee-paid benefit function produces a dollar amount that represents the annuity value of employee contributions as of a specified date, either the normal retirement date or the lump sum date. The way that you handle the employee-paid benefit depends on whether employee contributions supplement the plan benefit or whether they offset the cost of providing the benefit.

See Also

Managing Employee-Paid and Employer-Paid Benefits

Creating an Employee-Paid Benefit

To create an employee-paid benefit definition, use the Employee Paid Benefit (PA_EEBENEFIT_P1) component.

This section lists the pages used to create an employee-paid benefit definition and discusses how to:

• Set up to calculate appreciated value of contributions.

• Set up additional employee-paid benefit options.

Pages Used to Create an Employee-Paid Benefit Definition

Setting Up to Calculate Appreciated Value of Contributions

When an employee withdraws contributions, you need to calculate the appreciated value of the contributions until the withdrawal date. The employee accounts function provides the balance as of the event date, and an interest method determines any interest applied from then until the date contributions are refunded.

Access the Employee Pd Benefit 1 of 2 page.

Employee Contribution Account	Enter the name of an account to establish the beginning balance.
Refund of Contribution Date	There are two components to the interest basis: the date up to which interest accrues and the interest rate. The date up to which interest accrues is called the “refund of contribution date” or the (“date of determination”). This is normally the benefit commencement date, but if you use a different lump sum date, you might use that as the refund of contribution date.
Table Lookup for Interest Rate	The interest rate is determined by a table lookup. You set up your lookup basis on the Table Lookup page. Enter the name of your table lookup rule. This lookup returns a single interest rate that will be applied over all periods. The employee-paid benefit function does not permit an interest rate that varies over time (for example, the federal midterm rate for each month).

See Also

Creating Table Lookup Aliases

Setting Up Additional Employee-Paid Benefit Options

The employee-paid benefit function tells you what portion of the total benefit is attributable to employee contributions and interest. In order to compare the employee-paid benefit to the total benefit, this amount must be as of the same date (normal retirement date) and in the same form of payment.

If the refund of contributions date is before the normal retirement date, the employee account balance has to be projected to the date when the employer would normally expect to start paying pension benefits. This ensures that you compare equivalent numbers when you compare the employee-paid benefit result to the normal benefit amount.

Access the Employee Pd Benefit 2 of 2 Page.

Project to NRD or Use Lump Sum Date for project

Select Project to NRD to project the employee-paid benefit to the normal retirement date (NRD), or select Use Lump Sum Date for project to project the benefit using the lump sum date. The NRD is established on the Plan Aliases page. The lump sum date comes from the calculation page. Note. The lump sum date isn’t a required field on the calculation page, but it is needed if you project to the lump sum date. Therefore, if you choose to project to the lump sum date, you may want to make the lump sum date a required field on the calculation page. The system will only project when the selected date is later than the refund of contribution date on the Employee Pd Benefit 1 of 2 page.

Project Using

Specify the rules for the projection in the Project Using group box.

Convert to Annuity Using

To compare the employer-paid portion of a benefit to the total benefit, both portions have to be for the same form of payment, typically some sort of annuity. The system includes a factor utility that calculates conversion factors for different forms of payment. When you set up the factor, specify that you’re converting from a lump sum to your plan’s normal form.

Note. The factor alias references actuarial assumptions, including an assumption as to whether the benefit is paid annually, monthly, or in some other frequency. Be sure the payment frequency in the referenced actuarial assumptions matches the payment frequency of your normal form of benefit.

See Also

Creating the Plan Implementation and Plan Aliases

Maintaining Interest Rate Tables